Are price movements of Bitcoin and altcoins inversely coupled?

It is said that when the value of Bitcoin rises altcoins lose value, or at least their price in BTC falls, and I would like to understand exactly why.

If I have spend $10 in BTC to buy BLK, and BLK doubles its BTC price, but in the meanwhile the BTC value rises 6%, too (in reference to USD), I have $10 * 2 * 1.06 = $21.20, so, there's no loss of value.

However, on yobit at least, there was altcoins which saw a generalized selling, and other altcoins that just saw a tiny activity. In other words, the market was mostly paralyzed or only selling. Why is that?

Peregring-lk

Posted 2017-05-05T10:49:08.667

Reputation: 123

I'm not sure the answers below address the underlying idea of this question. Is it not a question about how the value of an asset paired with bitcoin's value changes as bitcoin's value changes? – zero_cool – 2017-12-03T18:35:11.757

@zero_cool At the moment of formulating that question, I wasn't thinking so specific, but anyway it isn't, because the observation its that, when btc value rises, what fall is not only the altcoin's btc prices (which is necesary for keeping their corresponding usd's values), but their usd values also fall (for altcoins that is both paired with usd and btc). – Peregring-lk – 2017-12-05T06:58:53.210

Answers

The idea that bitcoin rising leads to altcoins falling is an unproven hypothesis, it is something that traders have noticed, but due to the various flaws in human observation, we cannot say for certain it is true.

That said, there are several factors that could lead to this effect in the short term - but these are all speculative.

Traders are attracted to liquidity. Bitcoin has the most liquid leveraged markets of any crypto currency, or at least historically that has been the case. While the relative swings of bitcoin are smaller than for altcoins, the use of leverage allows traders to create large profits off of those swings in highly liquid, leveraged environments. When bitcoin is climbing rapidly, traders might be incentivized to reduce altcoin positions in order to increase their available bitcoin capital for leveraged trading.
Arbitrage against US dollar. Many altcoins are traded against the US dollar as well as against bitcoin. Let's say ETH is $50 USD, and .05 BTC/unit, and bitcoin is $1000. Bitcoin suddenly spikes to $2000 - the standing order books for the BTC/ETH pair will still show a price of .05, but that .05 is now worth $100. An arbitrage trader can buy ETH on the USD market and sell it on the BTC market for a near-instant profit - this drives down the BTC value and drives up the USD value until equilibrium is reached.
Bandwagon effect. The idea has become axiomatic so when bitcoin spikes, traders may be psychologically primed to sell altcoins in response.

Note: in many situations these factors are overwhelmed by other market forces, and it is not entirely uncommon for altcoins to outpace bitcoin during sustained price increases - this is demonstrably the case for most of the early 2017 bull market.

brandondoge

Posted 2017-05-05T10:49:08.667

Reputation: 411

In yobit, when the BTC/USD rise these days, the ETH/BTC also raised a ~16%, why is that? according to your explanation, people are not interested in buying ETH from BTC, but buying ETH from USD, and selling them as BTC, so ETH/BTC value must fall, however it grew. – Peregring-lk – 2017-05-05T18:36:45.413

1If ETH's value in both USD and BTC rises concurrently with the value of BTC, the incentive to arbitrage is gone. There are also no hard and fast rules - in a low volume market, the forces I outlined above can have a large effect. In a high volume market, other forces can easily overwhelm the factors I described. We are currently trading in an exceptionally high volume market. – brandondoge – 2017-05-05T19:59:50.030

This is fairly speculative, so take it with a grain of salt:

In the long term, Bitcoin and altcoins are serving the same global market and have very little distinguishing features that make one stand out. One of the most distinguishing features is Bitcoin's strong brand recognition and network. I expect that most of the altcoins will disappear from relevance in the long term, yet that the cryptocurrency market continues to grow. This means that Bitcoin would relatively gain value compared to most altcoins in the long run.

However, this does not mean:

that short term movements between Bitcoin and altcoins are negatively correlated
that Bitcoin's market share of the whole crypto market will always increase
that anyone can predict how the market will behave in the future.

Murch

Posted 2017-05-05T10:49:08.667

Reputation: 41 609

I think deposit/withdrawal times and the thing that many other altcoins are at the same time a service (like ETH or LBRY-credits), are making btc the modern gold instead of an actual currency. So, at least one altcoin must survive to the relevance's purge that you think it will happen, because it seems that btc is not going to be used as coin in the long term, but for money storage and investment (I think the segwit2x cancellation has been interpreted as a confirmation of the new gold nature of btc, which made its value rise as we see today). – Peregring-lk – 2017-12-05T07:14:47.653

Because traders are still thinking in terms of fiat instead of BTC, so they want to get out of altcoins and cash out their BTC when BTC rises. The rest of us know fiat doesn't matter.

Forrest Pump

Posted 2017-05-05T10:49:08.667

Reputation: 31

I don't understand why "thinking in terms of fiat" causes any difference. – Peregring-lk – 2018-01-03T13:28:39.013

If it didn't make a difference this wouldn't happen in the first place. Fiat is going away. BTC is the reserve crypto that alt-coins are traded on (not fiat). Therefore it would be correct to assume fiat doesn't matter when trading alt coins unless you are thinking in terms of fiat and not cryptocurrencies. If you are thinking in terms of crypto then only BTC matters, not it's value in fake fractional reserve monopoly dollars. So have fun and buy cheap when everybody is panic selling their alt-coins and BTC for fantasy cash. – Forrest Pump – 2018-01-04T17:16:33.667

And what's wrong with selling all of you have in altcoins to going to dollar, to buy btc cheaper when it touch support and thus getting more btc than before? And since altcoins are now cheaper too, you can come back to the altcoins to get more than before. Your portafolio is untouched but with increased amounts. – Peregring-lk – 2018-01-04T19:11:54.007

What surprise me the most is that it also happened when btc starts a new uptrend. People dump altcoins but I don't know the reason. – Peregring-lk – 2018-01-04T19:13:18.113

-2

when a new alt coin gets hyped, that you can only buy with bitcoin, people dump their money out of btc to it. yes they are linked in that sense. one goes up the other goes down. hello?

sir mills

Posted 2017-05-05T10:49:08.667

Reputation: 1